Equalize Property Taxes, and California Can Put Humpty Together Again

The U.S. Supreme Court, in a unanimous opinion earlier this year, overturned West Virginia’s practice of reassessing property at its current market value only upon sale. The court determined the West Virginia practice to be a denial of equal protection.

This controversy, now elevated to the level of a possible future United States Supreme Court case, raises questions for Californians--whether the court, in the West Virginia decision and in others, has said something that might have an impact on the 1978 Proposition 13 property tax cut measure. What is Proposition 13’s future? How long before it is changed? And what should Californians do now, wait or act before there is a crisis?

Proposition 13 is very similar to the reassessment practice struck down in the West Virginia case.

This decision, taken together with several other recent cases, offers anyone unhappy with the California reassessment provision the opportunity to challenge it in court on equal protection grounds.

How soon will California’s provision be tested? I would not be surprised to find that all the attention behind the West Virginia case results in a challenge to Proposition 13.

While the legal issue is a close call, I believe that the reassessment provision is flawed and is not severable from the rest of Proposition 13. If a challenge to the property tax-cut measure reaches the U.S. Supreme Court, the court will probably overturn at least the reassessment provision.

What happens without the reassessment provision? Will the court allow all property to be assessed at its current market value and local government to grow fat again from unlimited property taxes? Or will the court roll back all property to its 1975 actual or equivalent market value and lower California property taxes by literally billions of dollars to the great consternation of local government?

The likely course is that the question will be dumped back into the California Supreme Court’s lap with the United States Supreme Court simply saying to California, “Straighten this out; it’s bad.” The high court will likely tell California, “It’s your law, passed by your voters, and it’s up to you to put Humpty Dumpty back together again.”

Such a decision is likely to put California into yet another chaotic tax crisis, the magnitude and likes of which could shock even us Californians, living as we do with one leg on each side of the San Andreas Fault.

Faced with such a cataclysm, even if there is only a 10% or 20% chance that Proposition 13 would be overturned, how can we stand by and watch a growing discrimination in our property tax system threaten the fairness that is fundamental to our concept of justice in California? How can we allow this discrimination to threaten all the good that was achieved for taxpayers, not by the reassessment scheme of Proposition 13 but by its conceptual restriction on the amount and growth of property taxes. A strict property tax limitation was what was truly intended by its founding proponents, Howard Jarvis and Paul Gann, and the millions who voted with them. Can we allow that to be lost?

The answer is simple. We can’t. We need to equalize taxes for properties of equal value without increasing property taxes overall. Tax equalization between similar properties can be achieved through indexing. If property taxes are linked to the consumer price index or similar index, future taxes will be less because property values are rising faster than the CPI. Proposition 13 also could stand some improvement as a limitation on local government revenues derived from property taxes. While Proposition 13 cut 1978 property taxes dramatically, it has not been a good check on the growth of property tax revenues since then. Each year the growth in property taxes statewide has been far greater than the growth in CPI or any other index. In fact, in many years property tax growth has been three and four times higher than the CPI. Who is paying all this additional tax? The poor guy who just bought his home.

Author H.L. Mencken said, “For every human problem, there is a solution that is clear, simple and wrong.” Some of Proposition 13, although not its heart and soul, fits in this category. For the sake of fairness in taxation, stability in local government and the economic and social good achieved, we should fix Proposition 13 while we still can.